Stocks Hold Up, Yields Fall Ahead of US Inflation Data

MILAN (Reuters) – Global stocks rose on Wednesday and bond yields fell below recent highs ahead of US inflation data that will provide evidence of how the Federal Reserve will raise interest rates.

European shares extended their recovery from two-month lows, and US futures rose ahead of the long-awaited data release that analysts say could show inflationary pressures in the world’s largest economy are peaking.

The MSCI benchmark global stock index (.MIWD000000PUS) rose 0.3% by 1044 GMT after slipping on Tuesday to its lowest level since November 2020 on concerns that Fed tightening could slow the global economy significantly. The index is down 17% so far this year.

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The pan-European STOXX 600 (.STOXX) stock index rose 1.3 percent. US stock futures rose, with the electronic Nasdaq and Standard & Poor’s 500 index up 1.5% and 1.2%, respectively.

Concerns about faltering growth, exacerbated by the recent virus shutdowns in China, limited the sell-off of government bonds that saw US 10-year yields rise above 3% this month for the first time since December 2018.

“It’s an off-the-shelf market where people don’t know where (the proceeds) are going. The growth aspect is emerging more and more in relation to market concerns,” said Charles Diebel, Head of Fixed Income at Mediolanum International Funds.

“If inflation keeps going higher and higher, the market will keep selling. Inflation intuitively can’t keep rising because the underlying effects will wear off at some point but are we at that price yet?” he added.

Analysts expect the US consumer price index

They also expect a sharp decline in monthly growth, falling to 0.2% in April from 1.2% in March.

In Asia, stocks have pulled back up from nearly two-year lows. China’s blue-chip stocks (.CSI300) rose 1.4% after officials in Shanghai said half of the city had achieved “zero COVID” status, and after US President Joe Biden said he was considering eliminating Trump-era tariffs on China.

However, Chinese data released on Wednesday showed consumer prices rose 2.1% from a year earlier, beating expectations and the fastest pace in five months, due in part to food prices.

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Benchmark 10-year Treasury yields fell to their lowest levels in nearly a week, extending their decline from a three-year high of 3.203% hit on Monday, and CPI data at once may show a spike in inflation that is finally beginning to peak.

The 10-year yield fell to 2.9270%, down 5 basis points a day, while the two-year yield, which often reflects the Fed’s interest rate expectations, fell 1.8 basis points to 2.5858%.

Eurozone government bond yields also fell to their lowest levels in nearly a week amid signs that any tightening of the European Central Bank’s monetary policy will be gradual. German 10-year bond yields fell 4 basis points to 0.964%.

It also supported bets on the Federal Reserve’s strong tightening of the dollar this year.

The dollar index, which measures the greenback against six major peers, fell 0.4% to 103.57, below the two-decade high of 104.19 that was recorded at the start of the week.

The Federal Reserve raised interest rates last week by 50 basis points, and Chairman Jerome Powell said two more such increases are possible at the US central bank’s upcoming policy meetings.

There has also been market speculation that the Fed will need to engage in a massive 75 basis point increase in one meeting, and money markets are currently pricing in over 190 basis point rate hikes annually.

“The current problem is that the market is convinced that the Fed is determined to fight inflation, and therefore is prepared to withstand market volatility and some more demand destruction than it has been in the past. Personally, I am less convinced by that determination,” Giuseppe Cercil said. , fund manager at Antilia.

Morgan Stanley expects global economic growth for this year to be lower than half of 2021 at 2.9%, down from the previous estimate of 3.2%. Read more The US bank also cut its year-end target for the S&P 500 index by 11% to 3,900 points, while raising its forecast for the US 10-year yield by 55 basis points to 3.15%.

Oil rebounded again, buoyed by supply concerns as the European Union works to win support for a ban on Russian oil.

Brent crude rose 2.9 percent to $105.40 a barrel, and US crude rose 3 percent to $102.79.

And the spot gold price rose 0.8 percent to $ 1852.65 an ounce.

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Additional reporting by Danilo Masoni in Milan, Sujata Rao in London and Alun John in Hong Kong; Editing by William Maclean

Our Standards: Thomson Reuters Trust Principles.

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